Associated Legislation And Regulation Flashcards
What is Market Abuse?
A statutory offence covering financial market manipulation and insider dealing
What is MAR?
Market Abuse Regulation
When did MAR come into effect?
2016
Changes MAR brought in?
-Extended scope to include trading on non regulated platforms
- adapting rules for new tech
- added spot and derivative commodities
3 key changes between UK MAR and EU MAR after Brexit
- only have to comply with EU authorities if reciprocity is in place
- FCA takes over from ESMA and EC
- Updates are from UK treasury not EC
What is consider insider information under MAR?
- Precise information not public which would impact price of financial instrument
- info relating to pending orders
When does MAR say insider dealing occurred?
- trading on info for yourself or 3rd party
- cancelling or amending orders
- recommending someone else to engage in insider dealing
- making recommendations to others
What obligations do issuers have regarding insider information?
Obligation to inform the public asap of insider info concerning the issuer to allow investors to make timely assessments
Examples of market manipulation?
- entering into a transaction to give false signals
- securing a price (price fixing)
- fictitious devices
- spread false info
- false info re a benchmark
What types of trades does MAR apply to?
- Both unexecuted and executed trades
- request for quotes
What is STOR?
Suspicious transaction and order reporting
When should you tell FCA of suspicion of insider trading or market manipulation?
Without delay and includes attempts but without execution (Firms must report ASAP after full investigation)
What should be included in a STOR?
-identify of submitter
- description of order (type, price, volume)
- reason for suspicion
- mean of identifying people involved
- any other relevant info
Obligations of a sounding firm?
- consent of person receiving sounding
- inform person they cannot use that info
- inform of confidential nature
- maintain records
- advise when it ceases to be insider info
When is information considered to have been made public
- published to investors
- public records
- readily available to dealers
When is someone considered an insider?
- inside source themselves
- access to info through employment, office or profession
- access to a person who is themselves an insider
When does someone commit insider dealing
- deals in price sensitive securities when in possession of inside info
- encourages someone else to deal
- discloses inside info
What does CJA define as securities for insider dealing?
Shares
Debt securities
Warrants
Depository receipts
Options / Futures
CFDs
What does CJA exclude from insider dealing?
- Commodities (and their derivatives)
- FX
- units or shares in collective investment schemes
Defences to insider dealing?
- didn’t expect a profit (or to avoid loss)
- believed info was widely disclosed
- would’ve acted in the same way
If just disclosing:
- didn’t expect person to deal
- didn’t expect other person to profit
What are the special defences to insider dealing?
Market makers in relation to price stabilisation activities
Defence for insider dealing for market makers?
- acting in good faith in course of business
- if related to M&A they can say it was to facilitate the deal (will have to prove link)
What is the act of price stabilisation?
Agents and stabilising managers can buy securities in the secondary market for a limited time to support the issuance of new securities
4 main forms of market manipulation?
Manipulating;
- transactions
- devices
- benchmarks
And dissemination
Legitimate examples of dealing not being insider trading?
- information barriers in place
- market maker
- executing for 3rd parties
- legal obligation
- inputted before the inside info
- merger info (so long as info is public at point of merger approval)
- doesn’t apply to stake building activity
Restriction on trading your company shares?
Can’t trade in closed period, 30 days before interim or annual reports
What is money laundering?
Process of turning money derived from criminal activity into money that appears legitimate
What is POCA 2002
Proceeds of crime act
What did SOCPA 2005 legislation change re ML?
It is a potential defence if you can prove act was legal in another country e.g Spainish bullfighting. Secretary if state reserves the right to still consider it illegal
What does the Criminal Finances Act 2017 say?
Criminal offences for firms that fail to prevent tax evasion
What are MLR 2017 regulations?
Detailed regulations on EU ML directives
What does the FCA say about ML in SYSC?
Provides guidance but refers to JMLSG for further details
What is JMLSG
Joint money laundering steering group
What does JMLSG do?
Provide guidance to firms on how to interpret ML legislation, not mandatory but considered best practise. Approved by HMT
Who do regulated firms submit suspicions of ML to?
National Crime Agency
What is a SAR?
Suspicious activity report
What extra requirement as a result of MLR 2017?
Risk assessments
Policies to manage risk
CDD (customer due diligence), SDD and EDD
PEPs (politically exposed persons)
Reliance
Punishment for false money laundering statement under 4MLD?
Fine and or 2 years in prison
What was added to ML legislation under 5MLD?
- High risk factors for EDD (high risk 3rd party country or specific industries)
- Further details needed on beneficial owners
- must report companies house discrepancies
- included crypto activity
3 stages of ML?
Placement - introduce money in
Layering - moving money around
Integration - final stage when money appears to be clean
5 offences of POCA
Concealing
Arrangements
Acquisition
Failure to disclose
Tipping off
Jail time for ML Concealing / Arrangements / Acquisition offences?
Fine and up to 14yrs
Jail time for ML failure to disclose offences?
Fine and up to 5 years
Jail time for ML tipping off offence?
Fine and up to 2 years jail
What are the 3 parts of the JMLSG guidance?
1 - general for all firms
2 - sectoral guidance
3 - specialist guidance
What is a PEP?
An individual in a prominent public position
2 stages of ML disclosure?
Employee to MRLO
MRLO to NCA
What is FATF?
Financial Action Task Force
Sentence for failing to report suspicion of Terrorism?
5 years jail and a fine
2 usual difference between Terrorism financing and ML?
- often quite small sums for terrorism
- can be legitimate funds for terrorism
4 new offences under Bribery Act 2010?
Offering a bribe
Requesting or receiving a bribe
Bribing foreign official
Corporate offence of failing to prevent bribery
Penalties under bribery act?
10 yes imprisonment and unlimited fine for corporate offence
When is hospitality not considered a bribe?
When it has a legitimate business aim and is reasonable and proportionate
6 principles firms should employee to prevent bribery?
Proportionality
Top level commitment
Risk assessment
Due diligence
Communication
Monitoring and review
How long should CDD be kept?
5 years after relationship ends (transactions for a max of 10 years)
What are the purpose of disclosure rules?
- prompt and fair info in the market
- specific instances when insider info can be delayed being published
- sets out insider info confidentiality requirements
2 requirements for disclosure rules around control of inside info?
- Denying access
- breaches of confidentiality
What is the broad aim of the takeover code?
Ensure shareholders are treated fairly and not denied opportunity to review merits of a takeover
What is the takeover code NOT concerned with?
Financial advantages
Competition policy
6 principles of takeover code
- shareholders in same class treated the same
- sufficient time to review
- board of offeree must act in best interests of the company
- no false markers
- offerer must be able to fulfil cash obligation
- not hinder company for too long
EU disclosure level for share holdings?
Holding reaches, exceeds or moves below
5%, 10%, 15%, 20%, 25%, 30%, 50% and 75%
UK disclosure level for share holdings?
3% and each percentage point increase above that
Do you need to hold the shares to be required to disclose?
DTR applied even if you have 3% voting rights
Voting rights attached to shares don’t apply when?
- Shares settling between trading days
- custodian hold
- market makers holding less than 10%
- shares of less than 5% in investment firm trading book
- collateral
- stabilisation purposes
What connected parties shares are included under the disclosure rules?
Partner, kids
Companies controlled by investor (1/3)
Concert parties (agreement to vote together)
How long does a firm have to report their transactions (usual trading) to FCA?
Close the following working day
What is exempt from UK MIFIR reporting?
Stock lending
Repos
Borrowing transactions
How monitors the transaction reports?
FCAs transaction monitoring unit
Who is responsible for trade reporting?
Most senior party to the trade (or selling member if equal)
What is the ICO?
Information commissioners office
What is the ICO enforcement penalties?
Higher: 17.5M or 4% of worldwide turnover
Standard: 8.7M Or 2% of turnover worldwide
What are the capital requirement directive pillars?
1 - min capital for credit, market and operational risks
2 - firms should cover additional risks
3 - disclosure to improve market discipline
3 tiers of capital under CRD?
1 - permanent share, reserves, profits
2 - long term subordinated debt
3 - short term subordinated debt and trading books
